The Greenback Attack; US Dollar Shortage

The Greenback Attack; US Dollar Shortage A strong US Dollar is the arch nemesis of risk assets given its role in funding credit and being the de facto global reserve currency.  The US Dollar has been steadily rising since Feb 2018 when the current business cycle’s growth rate peaked. All the while risk asset valuations have been topping with the S&P500 being the last hold out.  USD strength is now at a point where it is negatively impacting underlying economic growth. Source: The repo market rates spiked over the last week as those funding markets are seeing a shortage of USD and high-quality collateral such as US Treasuries. This stress in the “plumbing” of the financial system is worrying. USD vs PMI To look at it another way, if we invert the year over year change in the USD there is a high correlation to the phasing of the business cycle as represented by the ISM Purchasing Manager’s Index.  As the USD weakens, we see the ISM PMI increase, and vice versa. When the USD is strengthening the ISM PMI rolls over as does the business cycle.  The Oct 2019 ISM PMI printed 47.8, the weakest print in 10…

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Has the Business Cycle Trapped the Fed and the Bulls?

Has the Business Cycle Trapped the Fed and the Bulls? The US Federal Reserve’s first interest rate cut in 10 years sent risk assets pummelling as many global equity markets fell 3% or more. Despite all the central bank interventions, the business cycle is alive and well.  TRI believes the down leg of the business cycle is well underway, where the weakening global economy triggers cascading declines in output, employment, income and sales. Ultimately leading to re-pricing of risk assets lower while sovereign debt becomes a safe-haven play.  The US or shall we say global trade war is creating additional economic headwinds. TRI’s June 2019 scenario of a bear and then bull traps for investors is playing out well. The bear trap beat the bears up pretty good, as the S&P500 rallied over 10% out of the June daily and weekly cycle lows. Now the setup appears to be complete for bull trap, right as the Fed’s cut interest rates.  The Fed now appears to be trapped as well, as its credibility is in question, and lower interest rates are on the horizon. As of August 2, the S&P 500 is on a bearish daily and weekly cycle trend. This…

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